What They Should Have Taught You About Money in School

David Bach shows us exactly what to do with every dollar we make while keeping the government, your future and your dreams in mind.

David Bach: Hey, everybody. I’m David Bach, author of the No. 1 New York Times best-selling book, “The Automatic Millionaire.” And what I’m here to do right now is give you a lesson about money in less than three minutes that will teach you almost everything you need to know and what you should’ve been taught in school and more. Ready? Let’s go.

When you earn a dollar, kids, what do you do with this dollar? So, let’s go through how money works in the real world. By the way, a billion people around the world earn less than a dollar a day.

So, chances are you’re earning more than a dollar a day. What do you do with this money? Well, in the real world, when you earn a dollar, what happens to that dollar? I’m about to show you. Very painful to watch this. You ready?

When you earn a dollar, the government comes along and takes about a third of it, and you pay taxes with that money. So if you’re going to work at 9:00, you’re going to work until 12:00 for taxes. Makes you want to come to work after lunch time. But that’s not the point today. The point today is what do you do with the money that you got left over? I’m about to show you. Super simple. Are you ready?

Number one: What you don’t do with your money is buy lottery tickets. Seventy billion dollars in the U.S. are spent on lottery tickets every year. That’s not what you do. This is not your ticket to freedom. Your ticket to freedom is right here in these three jars.

And kids, I want you to try this at home, all right? Your first jar is retirement account. Now, when you earn this dollar — remember I just showed you how much money you lost to taxes? Well, if you do it right, when you earn this dollar before you pay those taxes, instead of what you do is you take a dime. One dime. See this? You make a dollar, take a dime, you put it in your retirement account. That’s your 401k plan at work. That’s an IRA account. That money goes into this account before you pay taxes. It’s the one legal way to avoid paying Uncle Sam first. So that’s what you’ve go to do, and you’ve got to do that for the rest of your life automatically.

Now unfortunately, the average American is saving less than 3 cents a day. Just a dime, one dime. If you’re young and you’re starting out, and you get your first job, and you save one dime out of every dollar, you won’t have to worry about money for the rest of your life. If you’re starting later, it’s more than a dime. Now, let’s start with a dime.

Next thing you need to do — look, just three jars here — the next thing is security. My grandmother used to call this a “rainy day” account. You need to have an account for emergency purposes. How much do you put in it? A nickel, kids. You make a dollar, you put a nickel in the emergency account. What’s it for? Emergencies. Not things that aren’t emergencies. Like if you lose your job and you’re out of money, that’s an emergency. You fund your emergency account, and you don’t touch that money. And when that rainy day comes, you’re protected.

And the last thing we got here is a dream account. Now, this is the kind I want to call the fun part of life. Between retirement and now, you got a whole bunch of dreams. Now, how do you make those dreams real? You pay for them. So for every dollar, you take a nickel. You put that nickel into a dream account. That can be an investment account. It could be mutual funds. It’s somewhere that you’re not going to spend the money until you have the dream. So your dream could be a year from now, two years from now, three years from now. The way you make those dreams real is you buy them.

Now again, that was a very quick video, real brief. Make a dollar. One dime, retirement account. One nickel, emergency purposes. One nickel for your dreams. Make it automatic. It gets done. Doesn’t take discipline, doesn’t take a budget, doesn’t take time. And you’ve just taken care of yourself financially. Now, they should’ve taught this in school, but they don’t.

So guess what? Now you know ’cause when you know better, you can do better. Got friends who don’t know this in school? Do me a favor. Share it with them because this simple lesson could change their life. I hope it just helped you. Like it. Tell me what you think. Give me your feedback. I want to hear from you. If you enjoyed this video, maybe I’ll go shoot some more. Have a great day. I’m David Bach. Thanks for watching.

Advertiser Disclosure: Many of the offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all financial or credit offers available.

We make money easy.

Get email updates to help you make more, save more and live a richer life.